The economics of nightclubs and banks have a lot in common. Let me explain.

Let's talk firstly about Night clubs.

Patronising a nightclub is a lot of kind of fun. You get to listen to music, hang out with your friends, and for some, find a mate. However, after all the fun is had, there is always a bill to pay — and sometimes it can be quite substantial. Absent an agreed upon set of rules on how the cost should be allocated, the conversation as to who pays and how much can get quite heated.

“I was only there for a little bit.”

“I only had one drink.”

“I didn’t bring any girls to the table.”

Your scrub friend (you know the one) will always use excuses to avoid being part of the denominator of people who must split the bill. Early on in my friend banking career, His tight group of friends had a chat one day at work to codify the “bottle rules.”
The bottle rules determined whether or not a member of the crew was a part of the denominator and thus had to pay an equal share of that night’s bill.

The rules were simple:

Girls don’t pay.

If you have one drink, you are in for the whole bottle.

If you bring one girl to the table and she drinks, you are in for the whole bottle.

If you bring a friend who is male, and he has one drink, he is in for the whole bottle and you pay his share.

If you order champagne, you pay for that entirely by yourself.


Now lets talk about banks.

And now to the more pressing issue of how banking systems allocate inevitable losses.

Nations love robust banking systems. A good banking system allows the savings of the citizens to be aggregated and lent out to the government and productive companies. In an ideal world, this lending creates economic growth.

However, banking systems get into trouble quite often because they are fractionally reserved — i.e., they lend out more than they have on deposit. Their willingness to lend out money they don’t have frequently lands them in situations where they are unable to fulfil all of their depositors’ withdrawal requests, particularly during times of stress. These situations usually arise after some combination of political pressure, profit motives, and/ or poor risk management cause the banks to suffer massive losses, typically stemming from poorly underwritten loans or loan losses driven by rising interest rates.

A bank run ensues, and then the government has to decide who is responsible for paying the bill to drag its glorious banking system back into solvency just like the case of the night club.

Should some combination of depositors, shareholders, or bondholders bear the cost of bailing out the bank? Or, should the government print money to “save” the defunct bank and pass on the cost to the entire citizenry in the form of inflation?


The most well-run banking systems establish an agreed upon set of rules governing these types of situations before any crisis occurs, ensuring that everyone knows how a failed bank will be dealt with, eliminating any surprises. Because banking systems are believed by the financial and political elite to be so integral to a well-functioning nation state, it’s safe to assume that in almost every country, banks will always be bailed out.

The real question becomes, which schmucks get included in the denominator responsible for paying to recapitalise the bank?

Regardless of what division of costs has been agreed to prior to any bank failure, once a bank actually collapses, every stakeholder involved will always lobby the government to avoid being part of the denominator.

The recent naira scarcity should help you understand what am trying to say here!